A Look Into Our Fiscal Future

Looking out the windshield into the foggy future is always somewhat uncertain. So we look for a clear break in the fog to see where we are going.

Here’s a BIG, pretty darn clear, clue about the road ahead.

It’s from the Congressional Budget Office report on the Long Term Budget Outlook that can be found HERE.

In a nutshell, if we don’t get spending under control, and even if we do, our fiscal future shows us driving into a wall of debt, full speed actually.

The main problem isn’t the bills we are running up now, although they certainly don’t help. It’s Medicare and Medical that is going to kill us.

(Note: I do love the irony that our health care program is going to kill us.)

The difference between the two projections is the baseline scenario assumes no changes in the laws on the books. The alternative assumes that certain changes will happen.

So the alternative shows that upcoming changes just make things worse? That begs the question then why do them?

As we have seen recently in the PIIGS and other countries that are struggling with their debt, even large developed nations face stiff austerity programs that become necessary at that point they can’t pay their bills.

And the longer we wait, the bigger the bills.

We aren’t immune to this as this chart suggests. Far from it.

The CBO Report says, “…an immediate and permanent reduction in spending or an immediate and permanent increase in revenues equal to 3.2 percent of GDP would be needed to create a sustainable fiscal path for the next three-quarters of a century under the baseline estimate, but the alternative estimate is 8.1%.”

If we use GDP of $14 Trillion, then 3.2% is $448 Billion, and 8.1? is $1.13 Trillion that we need to increase taxes or cut spending.

The budget that was just proposed was $3.8 Trillion, so a spending cut would need to be about a quarter of the entire federal budget.

And a tax hike, given 308 million people would be either, $1,454 per person increase per year, or $3,668 per person per year, depending on which estimate was used

And that’s if they act today. Which we clearly aren’t going to do.

Why this matters

Clearly we can’t sustain the path we are on. Something will change.

The key in planing for the worst and hoping for the best is to have a plan in the first place.

For those counting on stable tax rates, Social Security, and Medicare in the decades to come. That’s not what we see when looking out the foggy windshield into the future.

So for those with a plan, plan accordingly, and those without a plan, get one.